Collagen itself is a complex protein molecule with a quaternary structure, therefore it needs to go through several stages of digestion to be broken down into amino acids to be absorbed, this is why there has been conflicting opinions as to whether collagen supplements are effective.
However, good quality collagen supplements are in hydrolyzed collagen or collagen peptide form. These are already partially broken down and as they go through the digestive tract they are modified into di and tri peptides (molecules with 2 or 3 amino acids respectively). Collagen-specific amino acid hydroxyproline, in particular, forms hydrolysis-resistant peptide bonds that lead to the appearance of di- and tripeptides. Those peptides are absorbed across the wall of the intestine into the bloodstream, and exert a messenger function directly on the target cell.
The di- and tripeptides that are formed during the digestion process carry the inherent bioactivity of collagen peptides. Those peptides are effectively absorbed from the intestine into the bloodstream, meaning that they are highly bioavailable. Reaching the target tissue of their bioactivity, e.g. skin, bone or cartilage, they deliver a messaging signal to the local cells positively influencing its function. Therefore their mechanism of actions appears to be more by influencing the activity of local cells as opposed to forming new collagen within the body, although hydrolysed collagen provides the building blocks to support collagen production.